New Zealand Government Pledges to Loosen Purse Strings If Re-Elected

  • Finance minister Joyce announces large boost to family incomes
  • Annual budget forecasts surpluses rising to NZ$7.2b by 2021

Steven Joyce speaks to media during the printing of the budget on May 23.

Photographer: Hagen Hopkins/Getty Images

New Zealand’s government has pledged to loosen the purse strings if re-elected later this year.

Finance Minister Steven Joyce said he’ll raise the thresholds at which higher tax rates kick in and increase support for low and middle-income families, when unveiling his annual budget Thursday in Wellington. The package will cost NZ$6.5 billion ($4.6 billion) over four years, eating into projected budget surpluses but boosting spending and keeping the economy growing at a healthy clip, he said.

The ruling center-right National Party is looking to woo voters from the opposition Labour Party ahead of a Sept. 23 election, when it will seek a rare fourth term in office. Thursday’s budget forecasts the economy will sustain at least 11 years of uninterrupted growth through 2021, with annual surpluses rising to NZ$7.2 billion.

“This is a budget that delivers for New Zealanders from a government that cares about people and knows how to get things done,” Prime Minister Bill English said in a statement. “Our ninth budget shows continuing improvement in the government’s books and solid economic growth expected to average 3.1 percent over the next five years.”

Gross domestic product will grow 3.2 percent in the current June fiscal year and 3.7 percent in 2017-18, the Treasury estimated. Growth will be underpinned by exports, tourism and consumer spending, with immigration projected to take longer to decline from record levels.

“Strengthening economic conditions are allowing the government to have its cake and eat it too,” said Michael Gordon, acting New Zealand chief economist at Westpac Banking Corp. in Auckland. “However, we have some concerns that economic growth, and therefore the surpluses, are unlikely to be as healthy as the government expects over the course of the next five years.”

New Zealand’s robust economy is boosting tax revenue, and will help the government deliver a NZ$1.6 billion surplus in the year ending June 30, better than the NZ$473 million forecast in December’s half-year update, Joyce said. The budget also showed:

  • The surplus will grow to NZ$2.86 billion in 2017-18 and to NZ$7.17 billion by 2020-21
  • Over the forecast horizon, the combined surplus is NZ$2.6 billion less than previously projected, due largely to the cost of the family package
  • From April 1, the government will raise tax thresholds, increase accommodation payments and adjust family tax credits that it says will benefit 1.3 million families. About 60 percent of the extra income is expected to be spent on consumption
  • The government pledged an extra NZ$7 billion over four years to fund health, education, justice and social services
  • It also allocated NZ$11 billion for capital and infrastructure projects

‘Election Bribe’

The main opposition Labour Party said the budget was “an irresponsible election bribe” that would do little for the poor.

“A single cleaner on a minimum wage will get just $1 a week extra” while top earners would “take home most of the tax benefits,” Labour leader Andrew Little said.

National had 46 percent support in a poll conducted for One News in late March. Labour had 31 percent and its ally the Green Party had 11 percent. The nation’s proportional representation electoral system lends itself to coalition governments, meaning the anti-immigration New Zealand First Party, which polled 8 percent, may hold the balance of power.

Interest Rates

The government’s incomes package is forecast to result in a modest increase in inflationary pressure. As a result, the Treasury forecasts interest rates will rise from the third quarter of 2018, a year earlier than the central bank currently forecasts.

Joyce said overall capital spending by central government and agencies will be a record NZ$32.5 billion over the next four years, some 40 percent more than in the preceding period.

Net debt is projected to decline to 19.3 percent of GDP by 2021 from 23.2 percent this year. Joyce has set a target of reducing debt to 10-15 percent of GDP by 2025 to ensure the nation has the capacity to respond to natural disasters or economic shocks.

He said tax levels will stay under review under a future National administration.

“I’d like to do more over time,” Joyce told reporters. “Our assessment is this is as far as we could go reasonably this year with the resources we had. It’s our intention to continue adjusting tax and transfer settings as fiscal conditions allow.”

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